Vol. 11, No. 1, January 2013
Embee, Inc. has been acquired by Triumph Group, Inc. with FOCUS representing Embee in the transaction. Embee is a leading commercial metal finishing provider offering more than seventy metal finishing, inspecting and testing processes primarily for the aerospace industry.
Located in Santa Ana, California, Embee employs approximately 400 people. The company’s key offerings include high velocity oxy fuel (HVOF), anodize/hard anodize, paint, chrome plating, shot peen, and cadmium plating.
Embee holds multiple AS 9100 and NADCAP certifications as well as OEM approvals from the industry’s prime commercial and military contractors. The company also serves the specialty automotive, medical device, and electronic industries.
According to Brent Costello, FOCUS Managing Director, “This acquisition presents Triumph Group with a unique opportunity to expand its current capabilities and provide comprehensive processing services on precision engineered parts for hydraulics, landing gear, spare parts and electronic actuation systems.”
Triumph Group, Inc., headquartered in Berwyn, Pennsylvania, designs, engineers, manufactures, repairs, and overhauls a broad portfolio of aerostructures, aircraft components, accessories, subassemblies, and systems. The company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, regional, business and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers.
John Dahlberg, the owner of Embee prior to its sale to Triumph Group, noted, “We share with Triumph Group a similar philosophy of quality and customer focus. We are excited to be joining the Triumph Group family and working together to provide exceptional service to our current and future clients.”
Encore Construction Company has been acquired by Garney Holding Company, owner of Garney Construction Company with FOCUS representing Encore Construction in the transaction.
Established in 1984 and specializing in the construction of water and wastewater treatment facilities and pump stations, Encore, headquartered in Winter Garden, Florida, has ongoing construction projects throughout the southeastern United States with contract values in excess of $235 million and has over 125 employees.
Kansas City-based Garney, an employee owned company since 1994, specializes in water and wastewater pipelines, treatment facilities, pumping stations, water storage tanks and other industrial projects. According to Garney’s CEO Mike Heitmann, “The acquisition will further enhance Garney’s presence in the fast growing Florida and Southeast market.
According to Pat Rainey, Encore’s founder and majority owner, “I was planning to retire in the next few years and was looking for a way to divest the company while taking care of all of my employees. FOCUS understood this and all of my other goals and led me to a successful transaction that is beneficial to all involved.”
Jonathan Wilfong, FOCUS Southeast Regional Managing Partner added, “This was an excellent transaction for all parties involved. Garney solidifies its position in the Southeast with its acquisition of this highly regarded and well respected company while Encore preserves its legacy by joining one of the best companies in the industry. In addition, all Encore employees are now owners in Garney and will participate financially in its future growth and success.”
By Eric M. Oganesoff, Managing Director and Big Data Team Leader, FOCUS
Big Data is a phenomenon resulting from the vast amount of data created by individuals, machines, corporations, and government, driven by technology trends that include social media (Twitter, Facebook, blogs, Four Square, You-Tube, etc.), wireless technologies, enterprise applications, mobile devices, and sensors (GPS, RFID, medical devices, smart grid, manufacturing processes, etc.), most of which are either connected to the internet or part of an internal network.
Ninety Percent of Data Available Today Was Created in the Last Two Years
This explosion in data is staggering—twice as much data is created every day than was created in all of 2000 and ninety percent of the data available today was created in the last two years. In 2011 alone, approximately 1.8 zettabytes (or 1.8 trillion gigabytes) of data were created, and that amount is expected to more than double every two years. Just to give you an idea of how much data that is—consider the following:
- 1.8 zettabytes (generated in 2011) is the equivalent of 200 billion two-hour HD videos. It would take a single person over 47 million years to watch it all.
- 5 exabytes (or 5 billion gigabytes) of data represents all the spoken words in all of history and that is now generated in one day.
- 1,000 megabytes is one gigabyte; 1,000 gigabytes is one terabyte; 1,000 terabytes is one petabyte; 1,000 petabytes is one exabyte; 1,000 exabytes is one zettabyte; and 1,000 zettabytes is one yottabyte.
Big Data is Growing at Seven Times the Overall IT Market
Growing at seven times that of the overall IT market by 2015, Big Data is the combination of structured data (already in defined fields), which is about 10 percent of the data generated, and unstructured data (blogs, tweets, videos, photos, Facebook pages, etc.) which is the remaining 90 percent. According to International Data Corporation (IDC), Big Data is poised to revolutionize the decision-making process across many industries.
The market for Big Data technology, solutions, and services is expected to grow from $3.2 billion in 2010 to $16.9 billion in 2015; an over 40 percent growth rate. As the world becomes increasingly digitized, companies and government organizations are scrambling to manage and make sense of all this data. Tweets, Facebook posts, blogs, YouTube videos, and various other forms of social media can facilitate mass actions by going viral in seconds, having the potential to impact millions of people in a short period of time. Purchasing decisions increasingly are made based upon information obtained from blogs, message boards, and tweets. Even revolutions are accelerated by the growth of and access to social media.
Unstructured Data is Growing at 15 Times the Rate of Structured Data
Everything from social media conversations to location-based mobile data has become part of an ever increasing pool of unstructured data, which is growing at 15 times the rate of its structured counterpart. Twitter produces 12 terabytes of Tweets per day, and Facebook users share more than 30 billion pieces of content each month.
The analysis of unstructured, conversational data is becoming increasingly important as characterized by Nielsen, who conducted a survey of 25,000 Internet users and discovered that 90 percent of customers trust peer recommendation compared to 70 percent for brand websites and consumer opinions. Analysis of conversational data can bring benefits to a vast number of sectors and has many uses such as security, marketing, reputation management, and trend identification.
Exponential Data Growth is Creating Opportunities
Another data producer is the exploding number of machine to machine (M2M) devices (sensors, embedded communication devices in vending machines, smart meters, etc.) connected to the internet. Across sectors from automotive, utilities, to retail, over 25 billion devices will be connected to the internet by 2015. And these connected data devices are growing at a rate of 30 percent per year.
Additionally, radio-frequency identification (RFID) tag sales (which are generally used for supply chain management) are expected to rise from 12 million in 2011 to 209 billion in 2021. This exponential growth of data creates both significant challenges and tremendous opportunity when it comes to finding real value that can be used by companies and governments.
To solve this problem, traditional information management players such as IBM, SAS, Teradata, and SAP have emerged with Big Data services. As the components necessary for effective, high-speed data management are free-falling in cost and open-source source platforms such as Hadoop, HPCC Systems, and Cassandra are available, start-ups are emerging developing innovating techniques to extract insight from previously underutilized data.
Big Organizations Are Launching Big Data Initiatives
Big organizations are moving out with Big Data initiatives; for example, the United Nations, U.S. Federal government, and state of Massachusetts all have taken an interest in promoting the industry. The United Nations’ initiative, Global Pulse, is underway, performing real-time analytics on worldwide social event data over the web to analyze human well-being. The goals of the initiative are to provide data analysis research, prevent crises, and protect vulnerable populations.
Meanwhile in the U.S., the Department of Defense plans to spend $250 million annually on Big Data as part of a White House Big Data Initiative released in March. Further, six Federal departments plan to pledge $200 million in commitments related to the managing and analysis of “huge” data volumes.
Big Data’s Return on Investment
To address any hesitation in trying Big Data appliances, vendors such as IBM, Splunk, Tableau, and Datameer are offering free trials of their products. Additionally, research firms, data analysis firms, as well as customers in the Big Data industry have demonstrated the return on investment (ROI) of Big Data:
- McKinsey estimates include a 60 percent increase in operating margins for retail, $300 billion potential value to U.S. healthcare, $146 billion (€100 billion) of savings in public sector operational efficiency improvements to developed economies of Europe, 50 percent decrease in product development and assembly costs, and seven percent decrease in working capital for manufacturing.
- Splunk customer Expedia reported a 300 percent improved response time, reduced downtime by 90 percent, and the closing of 200 servers, all generating an annual ROI of $14 million.
- IBM has touted exceptional results. In healthcare, a 20 percent decrease in patient mortality was achieved through analysis of streaming patient data. For the telecom industry, IBM reported a 92 percent decrease in processing time through analysis of networking and call data.
- Williams-Sonoma has combined their customer database with information such as income, housing values, and number of children of 60 million households. As a result, the firm has achieved 10-18 times the response rate compared to untargeted e-mails.
- DeepMile Networks applied deep analytical technology to identify the key online influencers and catalysts that helped drive the Egyptian revolution in real time. In addition to the Google guy, Wael Ghonim, DeepMile identified eight individuals who drove more action than Mr. Ghonim, including an activist, an engineer, a 20-something coed, and an Al Jazerra journalist—most of whom were not in Egypt at the time.
There have been a number of transactions in the Big Data market as investors and acquirers attempt to benefit from the growing trend in big data analytics and solutions. Splunk, a machine-generated data analysis firm, is thus far the first public, Big Data pure-play. On its first day of trading, April 19, Splunk closed at $35.48 per share, a 108 percent increase from the offering price of $17 per share, valuing the firm at $3.28 billion. Based on revenues of $121 million in its last fiscal year, the valuation was 27x revenue at end of trading. Recently, Splunk shares were trading at a 60 percent increase from the debut price but down from its 52 week high of $39.75 per share.
The number of private placement transactions in Big Data has increased 60 percent year over year from 2010-2011 to 125 transactions, according to our estimates. The value of private placements, on the other hand, has increased 200 percent within the same time period to $1.4 billion. This year is looking to be similar if not better than 2011 with an estimated 53 transactions with a total value of $810 million by mid-year.
Of available transaction metrics, Palantir Technologies, a Big Data analytics firm, has garnered the largest amount of funding since 2010 at $266 million. Having doubled in size every year since its founding in 2004, the firm mainly specializes in the government and financial sectors.
Additionally, venture capital firms are openly proclaiming a desire to take advantage of the exploding Big Data market. Accel Partners launched a $100 million Big Data fund in November; IA Ventures launched a fund of the same amount in February; and Costanoa Venture Capital launched a $100 million fund in December focusing on early stage Cloud and Big Data Companies. Data Collective, the first Big Data early-stage VC, has been working with a $10 million fund, investing in 46 startups. A second fund is currently underway, estimated to be about $50 million.
In-Q-Tel, the CIA’s investment arm, has taken an active role in the Big Data realm over the past two years. Big Data companies in their portfolio include: Recorded Future, Digital Reasoning Systems, Cloudera, Fetch Technologies, Platfora, Visible Technologies (social media analytics), and Netbase Solutions (social media analytics).
Mergers and Acquisitions
While total U.S. transaction numbers between 2010 and 2011 remained essentially flat according to Thomson Reuter’s year-end mergers and acquisitions review, Big Data has exhibited drastically different behavior. According to our estimates, the number of transactions in the Big Data realm has increased three-fold between 2010 and 2011 to 31 transactions. More importantly, the total number of transactions mid-year in 2012 has already matched last year’s total.
Traditional players in the data management field have been very active as far as acquisitions go. IBM has forked over an aggregate total of over $16 billion between 30 analytics acquisitions in the past five years. Based on available figures of Big Data over the last two years, EMC has spent over $3.3 billion through its acquisitions; Oracle has invested $1.5 billion in Big Data through its acquisitions.
Economy Poised for 2013 Gain
“As 2012 comes to a close, the U.S. economy is also turning a page: The recovery is over. It looks like 2013 will be the start of a more normal, through hardly robust, period of growth…” The Wall Street Journal, December 17, 2012
2013 Could be the Year that Some Headwinds Turn into Tailwinds
“…Globally, 2012 was the year when industrial production around the world slowed down, slowing global trade, decreasing demand for industrial commodities, lowering their prices, and in turn, limiting economic growth in commodity-exporting developing countries. Europe and Japan remain mired in recessions as 2013 approaches.
But elsewhere, industrial activity is generally no longer slowing and could begin to recover in the first half of 2013. In turn, global trade could improve, lifting demand and prices of commodities, reigniting some growth in commodity producing and exporting countries. If 2012 headwinds turn into 2013 tailwinds, next year could be a prosperous new year indeed.” -- The Conference Board, December 18, 2012
Signs Point to Slow Recovery from Crisis; Some Note Innovation Can Spring from Adversity
“The U.S. economy is recovering slowly from the financial heart attack it suffered in 2008. Like a middle-aged man talking to his doctors, it now asks: When will I feel like myself again? Will I ever get back to normal? Will it be soon?
Things are getting better. The U.S. economy has been growing since the middle of 2009, something that can't be said of the euro zone, the U.K. or Japan. Yet it still has a long way to go… ” – The Wall Street Journal, January 2, 2013
What’s It Gonna Be, 2013?
“…Despite a worse-than-expected holiday season, the Federal Reserve forecast that G.D.P. growth would approach the historic average of about three percent in 2013. The economy may be coming back, but the question for many businesses is what the new ‘normal’ looks like… What is clear is that the big changes are just beginning…” New York Times, January 2, 2013
The latest issue of the FOCUS Government, Aerospace and Defense Group Report—highlighting aerospace—is now available. The new GAD report includes:
- “Cyber Security: Battlefield of the Future” by Colonel (R) Thomas E. Woosley, FOCUS Senior Advisor
- Cyber Security in the News
- Cyber Security—Growth and Global Market Size
- Performance: S&P 500 versus GAD plus performance of three custom indexes compiled by FOCUS to track public market valuation trends in each GAD sector
- M&A Activity in the GAD Sector—GAD M&A Transactions by Quarter and Selected 2012 Transactions
- Selected Recently Closed FOCUS GAD Transactions
In public markets, the performance of FOCUS’ Carrier-Focused Telecom Technology Index (CFTTI) remains choppy. The CFTTI dropped 7.1% in the past year and 1.4% in the past three months. For the most recent twelve month period, the drop in the CFTTI contrasted sharply with a gain in the S&P 500 of 13.6% and a gain in the NASDAQ of 14.9%...M&A activity for the three month period saw 15 M&A transactions for a total dollar value of $414.7 million… For the year, M&A activity in the Carrier-Focused Telecom Technology sector is on pace for a solid level of activity. The total number of transactions will be roughly in line with the average of previous years, while the announced dollar volume of M&A activity is already higher than any year in the past five…
According to an article by Steven M. Davidoff in the December 26, 2012 New York Times, “It is time to award the Deal Professor A’s, the grade for the best deals and deal makers of 2012. Unfortunately, there were also a large number of F’s this year. Here is the top and bottom of the class… ”
Davidoff takes on 15 deals, ranging from Apple-AuthenTec to Venoco, awarding four Fs, one “incomplete,” and ten As. Check it out at http://dealbook.nytimes.com/2012/12/25/the-triumphs-and-failures-of-deal-makers-in-2012/.
Operating nationally and internationally, FOCUS currently is working with buy- and sell-side corporate clients, private equity groups, holding companies, and late stage venture capital firms in 24 areas:
We have executed dozens of transactions in a range of market segments, but the same fundamentals apply across all of them. Our on-going transaction process provides us with up-to-the-minute market knowledge in these sectors that may be of corporate development interest to you.
► Capital Financing -- focusbankers.com/capitalfinancing
► Community Bank and Financing Institutions – focusbankers.com/communitybanking
► Education & Human Capital Development -- focusbankers.com/education
► Energy Production & Distribution -- focusbankers.com/energy
► General Middle Market Businesses
► Government, Aerospace & Defense -- focusbankers.com/gad
► Healthcare & Life Sciences -- focusbankers.com/health
► Information Technology -- focusbankers.com/technology
► Telecom Technologies & Services -- focusbankers.com/telecom
Founded in 1982 in Washington, D.C., FOCUS, LLC provides a range of investment bank services tailored to the needs of middle market businesses and their executives. Today, we are a national firm serving clients from offices in major cities across the United States. FOCUS specializes in serving business units with revenue or transaction sizes between $5 and $300 million, serving entrepreneurs, corporate owners, and various types of investors. FOCUS clients include large corporations and private equity firms that engage the firm for middle market transactions.
FOCUS has achieved a very high close rate on accepted buy side, sell side, and corporate finance mandates because of the unique resources, processes, and perspective that we bring to middle market investment banking. FOCUS has developed a systematic, research driven, open, and proven transaction process. It is the driving force of our firm and distinguishes us from other investment banks serving the middle market.
With extensive investment banking transaction experiences and a group of seasoned operating and financial executives, our firm provides a unique value proposition. We bring a strong operating perspective, a wealth of practical experience, and a proven research and transaction process to our middle market clients. Our knowledgeable resources include seasoned partners, managing directors, principals, senior advisors, research staff, internal databases of national and international contacts, and deal experience in a range of industry sectors.